Market Update: Fed Cuts Benchmark Interest Rate by 0.5%, Marking the First Reduction in Four Years

Blog posted On September 18, 2024

This afternoon, the Federal Open Market Committee (FOMC) voted to cut the benchmark interest rate by 0.5%. The cut comes as welcome relief to consumers after 2.5 years of rate increases.

Why aren’t mortgage rates lower today?

As a reminder, the federal funds rate does not directly dictate the direction of mortgage rates. In fact, the markets were likely already priced in for today’s cut. What’s more important for the direction of mortgage rates is the language in the statement and press conference of Fed Chair Jerome Powell.

Here are the broad indicators for a rate cut:

1. Debt/borrowing could become cheaper
   Borrowing costs should decrease for many loans
2. Can encourage employers to hire

Hiring has slowed over the past few months, but lower rates could make business loans more affordable and encourage hiring

3. Economy could gain strength

Lower rates can ramp up spending and bolster the economy to prevent a recession and keep a soft landing

Looking forward

More cuts are slated for the coming months. Interest-rate projections have another full percentage point decrease over the next year. That would bring the fed funds rate to just below 3.5% by the end of 2025. When asked if he sees a recession coming, Powell noted that “[he doesn’t] see anything in the economy that suggests the likelihood of a downturn is elevated.”

If you have any questions about what this means for you, let us know.

Source: Bloomberg, Investopedia, MBS Highway, WSJ